Nisshinbo Industries, Inc. (the “Company”)
was founded in 1907 as a manufacturer of cotton yarns and threads,
and quickly assumed a position of leadership in the industry. Our history has been characterized by strategic moves taken in advance of competitors and designed to raise productivity, improve quality and add
value. Today, we are a total textiles manufacturer, controlling operations from spinning to finishing. This, together with our accumulated
high levels of technology, gives us an advantage in the development of
truly distinctive products and in quality control. Through the application in other fields oftechnologies and expertise originally developed in the textiles area, we have diversified
our operations into the manufacture of automobile brakes, machine tools, chemical products, papers, and others. These non-textile lines have grown steadily,and now account for just under 50% of net sales. We have targeted certain strategic products to form the basis of future growth: High valueadded finishing processing and products in the textiles field, includingSUPER SOFT and SSP (SUPER SOFT PEACHPHASE), new-generation anti-lock brake systems, CNC machine tools, non-fluorocarbon
polyurethane foams, new carbon products, fine papers, and computer
color matching systems. Together with our subsidiaries and affiliates,
we are focused on steady business development through the harnessingof our collective strengths across our entire business range.

Contents

Financial Highlights ◗ 1Business Lineup ◗ 2
Getting Ahead by Thinking Afresh ◗ 4Interview with the President ◗ 4Special Features ◗ 6
Review of Operations ◗ 10
Financial Review ◗ 14
Six-Year Summary ◗ 15
Financial Section ◗ 16
Board of Directors ◗ 36
Corporate Data ◗ 36
Organization Chart ◗ 37

The paper used for this Annual Report is fromNisshinbo’s FLEUVE series of fine papers.

(Years ended 31st March)

Non-Consolidated:
Net Sales
Net Income
Shareholders’ Equity

Per Share:
Net Income
Shareholders’ Equity
Cash Dividends

1998

1999

1999

¥170,318
1,808
166,948¥162,662
1,938
167,170$ 1,356
16
1,393

(yen)

¥

7.64
706.087.00

Consolidated:
Net Sales
Net Income
Shareholders’ Equity

Per Share:
Net Income
Shareholders’ Equity(millions of
US dollars)(millions of yen)

(US dollars)¥

8.19
707.027.00$ 0.075.89
0.06(millions of
US dollars)(millions of yen)
1998

1999

1999

¥240,249
1,087
199,373¥226,800
4,161
200,779$ 1,890
35
1,673

(yen)

¥

4.60
843.21(US dollars)¥ 17.60
849.16$ 0.15
7.08

Note
The United States dollar amounts in this report are given for convenience only and represent translations of Japanese yen at the rate of ¥120 = US$1.

171

Textiles
Textile products have been our mainstay since our foundation. Our products are distinguished by their quality and competitiveness. We have the top share in domestic markets
for shirt materials (around 40%), textile sheets for bedding (around 40%), denim (around40%), Tetron & cotton blended uniform materials (around 35%), and spandex for totalsupport panty hose (more than 50%). Our state-of-the-art production facilities and unique,comprehensive in-house production system, which includes the finishing process, allow
the manufacture of products that overseas makers cannot match for quality. An ability tomeet the precise needs of customers is our particular strong point. Our original textile
products include MOBILON spandex and OIKOS non-woven cotton fabrics. The SUPER
SOFT, SSP and CELTOPIA finishing processes are also original.

Non-textiles
Automobile Brakes
We are one of Japan’s leading makers of automobile brakes and friction materials, andthis sector has an important role in our drive to diversification. Our product developmentemphasis is on asbestos-free friction materials, new concept drum brakes, Anti-lock Brake
Systems (ABS) and Stability Control Systems. In the ABS field, we successfully developed
the original, compact, low-cost NT series, which is targeted at markets worldwide. Stability Control Systems make it easier for the driver to control movement of the car and thus
enhance safety, and we have developed such a system.
In parallel with the development of our own technologies, we exchange technologies
and collaborate with major overseas brake manufacturers.

2

Machine Tools
We are an acknowledged specialist in the manufacture and sale of customized machine
tools and CNC turret punch presses, laser cutting machines and press brakes. We develop
and manufacture modular units for FMS and CNC hardware/software systems for the
automotive, electronics and aerospace industries. Through subsidiaries and joint ventures, we are now marketing machine tools overseas as well as in Japan.

Chemical Products
We produce rigid-type polyurethane foams for application as heat-insulation material,and flexible types used as cushion material. Processed products include AIRLITE-FRU, alightweight, high-strength, corrosion-resistant glass fiber-reinforced polyurethane foam
widely used in the water treatment and construction industries, and SETFOAM for civilengineering applications. We are also a pioneer in the introduction of environment-friendly
non-fluorocarbon polyurethane foam for application as heat-insulation material in theconstruction field. Our original polyurethane elastomer MOBILON is used in various industrial products and consumer items. In addition, we offer new carbon products forapplication in semiconductor production and other electronics fields.
Other materials include CARBODILITE and electromagnetic wave shield materials andmolded METTONTM products produced and marketed by Nisshinbo.

Papers
We manufacture a wide range of paper products. These include household papers, suchas tissue paper, toilet paper and kitchen-use paper towels, fine papers used in printing,publications and packaging, and synthetic papers. In each of these areas, we occupy a
top-ranking position. Our value-added products include VENT NOUVEAU natural-feelfine paper for high-quality printing and synthetic papers for ink-jet printing.
We are also involved in label printing and the manufacture of label printers. Our productlineup in this field includes small-size, high-speed printers and integration software for
information processing and printing.

OthersWe develop and supply the production systems which integrate the CHOSHOKU SENKA
fuzzy logic computer color matching (CCM) system, manufacturing process support system and automatic inspection system, all based on original technologies.
We are also engaged in the real estate business for the purpose of efficient utilization of
our unused land.

3Q . What were Nisshinbo’s results for fiscal 1999,
ended March 31, 1999?

A. First, let me give you our non-consolidated results. In
fiscal 1999, net sales totaled ¥162,662 million (US$1,356 million), down 4.5% from fiscal 1998, ended March 31, 1998.
Operating income amounted to ¥652 million (US$5 million), a
decrease of 78.5%. Net income was ¥ 1,938 million (US$16
million), an increase of 7.2%.
Net income was significantly affected by certain one-off items.
Gain on sales of securities amounted to ¥9,153 million (US$76
million). This more than outweighed loss of ¥5,422 million(US$45 million) on devaluation of securities, which included
an amount of ¥4,631 million (US$39 million) on equity in
Nisshinbo California Inc., a joint venture textile subsidiary in
the U.S. that performed poorly.
Sales of textiles totaled ¥81,786 million (US$682 million), a
decrease of 7.6%. Sales of non-textiles amounted to ¥80,876
million (US$674 million), down 1.2%. The ratio of non-textile
sales to total sales was 49.7%, up 1.6 percentage points.
In fiscal 1999, the Japanese economy was marked by continued deflationary pressures. Consumers spent less, product inventories swelled and selling prices generally fell. In these circumstances, our sales and profit for both textiles and non-textiles inevitably decreased.
On a consolidated basis, net sales for fiscal 1999 amounted to¥226,800 million (US$1,890 million), a 5.6% decrease from fiscal 1998. Operating income was ¥373 million (US$3 million),
down 90.6%, due to the poor results of both the Company andits subsidiaries. Net income was ¥4,161 million (US$35 million), up 282.8%, due to gain on sales of securities of ¥9,220
million (US$77 million).

Q . Given the continuing difficult market

conditions, what is your management strategy?

A . The fact is that our ability to generate earnings has declined

to the point where operating income barely shows a surplus. Improving the profitability of each division is an immediate priority. We must review each business segment in detail and makeserious efforts to improve our results. We need to build into ouroperations a greater flexibility to respond to problems. This steady,4

purposeful approach is the surest way to achieve growth.
Under the theme of “Getting Ahead by Thinking Afresh,” thisannual report describes our efforts to bring about a turnabout in
performance. In fiscal 1999, we continued to stress the need to
improve management efficiency, actively searched for profit andgrowth potential, and concentrated our management resources
into growth areas and core activities.
We are also strengthening our global customer base, developing high value-added products, promoting promising technicaland business developments, and implementing measures that address environmental issues. These efforts will lead to stable, longterm business growth based on solid foundations. We will notchase after a merely temporary hike in results.

Q . What do you mean exactly by “concentrating
management resources?”A. Each division is streamlining its business operations. For
example, in the textile field we centralized textile development,
production and sales operations at the Osaka Branch by moving the Textile Engineering Division from our Head Office, Tokyo, to Osaka. The aim is to commercialize new products andidentify sales opportunities more quickly.
We are continuing our shift to value-added products, while
also marketing selected basic items within a context of reducing costs without cutting current production capacity. We plan
to dissolve non-profit-making subsidiaries and affiliates. We
decided to wind up Nisshinbo California Inc., where sales wereconstantly disappointing, accumulated losses were substantial
and the likelihood of improvement seemed remote. Our
Mechatronics Division is presently reviewing its product lineup,rationalizing its inventory and reducing its staff complement.
To promote the efficient production of high-quality products,
we are rationalizing and updating our production and R&D
facilities. We were presented with an ideal opportunity to makeprogress in this area when the site of our Tokyo Plant became
subject to acquisition for an urban redevelopment project. Production operations at the Tokyo Plant are being transferred toother existing plants.
Our real estate leasing business continues to redevelop vacant or underused properties with the aim of reinforcing our
profitability.

for production and sales from a global perspective. In terms ofsales, we have identified Asia as a key regional market for highvalue-added products which have a competitive edge, such as
SUPER SOFT products.
Our Brake Division, which has manufacturing bases in the U.S.
and Asia, is currently emphasizing new product development andcost-reduction efforts in order to remain competitive in a fastchanging industry.

Q . How are you handling the Y2K issue?
A . We have been working toward Y2K compliance since 1996,

with the Information Systems Office at the core of related activities within Nisshinbo. In January 1999, we set up the “Committee for Y2K Issues,” giving it the responsibility to ensure Y2K compliance on a company-wide basis. We have already checked all
Nisshinbo’s information systems, automated equipment and soon, and are scheduled to complete all remedial measures by September 1999. In March 1999, we established the “Nisshinbo Y2K
Committee” to draw up contingency plans to cope with Y2Krelated difficulties and to provide backup to the entire group. This
committee completed a comprehensive plan in June 1999.
Akihiro Mochizuki, President

Q . What are your policies regarding further
globalization?

A . Our high-value products remain competitive internation-

ally. However, certain trends in the global market, such as intensifying competition in the textile industry and cross-border consolidation in the automobile and automobile components industries, have become more pronounced. It is vital, therefore, that
we broaden our customer base worldwide. That way, we diversify
our revenue streams and are not so susceptible to a downturn inany particular region or sector.
With this goal in mind, we are conducting a fundamental review of our operations, including exports, local production andthird-country trade, in order to improve service and become more
responsive to change.
Specifically, the Textile Division is creating an infrastructure

Q . What is your policy with regard to dividends?
A . Our basic policy is to return profits to shareholders, ideallyby increasing dividends in line with earnings. Of course, we mustalso make judgements about the levels of retained earnings necessary to secure future growth. Because of the adverse businessenvironment, our results for fiscal 1999 were not as we had hoped.
Nevertheless, we gave priority to returns to shareholders. The pershare dividend for fiscal 1999 is ¥7.00 (US$0.06), the same as forfiscal 1998.

Akihiro Mochizuki
President

5Establishing Solid Foundations

Creating a High Value-added Product Lineup

Superior R&D is the core of our strategy. We are currently constructing a state-of-the-art R&D Center in Chiba City, scheduled
to be completed in March 2000. The new facility will enhance
our existing R&D endeavors, which are aimed at:- Identifying development themes that are not only original
but will also lead to products with competitive strengths andlarge potential markets- Creating an information system that allows employees to shareideas on product development effectively and on a global scale- Securing outstanding research personnel, raising staff awareness of our development needs, and cultivating the appropriate skills to meet those needs

To be a market leader globally, we must keep pace with constantchanges in demand, meeting existing requirements more effectively and developing products that satisfy as yet unimagined needs.
Japanese companies no longer have a cost advantage in the standardized, mass-produced textiles field. We are rising to this challenge. At Nisshinbo, we have identified our future as lying in the
production of superior quality, high value-added products basedon the utilization of our accumulated advanced technology.
The Textile Division has long been pursuing such a policy. However, it has recently intensified its efforts to shift to original products with better margins. We have set a target of 60% for the ratio
of internally developed, original products against total textile sales.
SUPER SOFT liquid ammonia processing products, originally
Our R&D expenditure for fiscal 1999 totaled ¥6,396 million used for shirts and now also used for casual pants, pajamas, cotton(US$53 million), an increase of 4.7% over fiscal 1998. As of March blankets, etc., account for a substantial proportion of these new,
31, 1999, the number of patents held by Nisshinbo was 668, while unique textile products. We are reinforcing such value-added lines
patent applications outstanding totaled 1,724. We are expanding in order to establish them as main pillars within our lineup.
the utilization of such intellectual property through our own deWe continue to exploit our technological know-how gained invelopment projects or throughthe non-textile field, develope
aredeterminedtobeamarketleaderonagloballicensing agreements.
ing distinctive, high-end prodbasis. Today, competition is so intense
ucts that are competitive on ainternationally that companies which aspire to leadershipmust constantly develop products that have first-classpotential. Throughout our business domain, we are using
our technological, marketing and management know-how todevelop unique, high-quality, high value-added products andposition them as pace-setters in markets throughout the world.
Biotechnology, a new businessW

field with great prospects

Our latest NT20Si ABS, a superior
product made even better6

global basis.
In the automobile brakes segment, increased usage of ABS has
led to intensified competition. We had already identified this as afast-growing market and in fiscal 1999 we launched two new products in the successful NT series. The NT-Pi, a compact ABS ideal
for mini cars, and the NT-Z1, with excellent stability control, havealready proven popular among automakers.
In the carbon products field, we are reducing our dependency on
the semiconductor business by developing new applications that capitalize on carbon’s many advantageous properties. They include applications for liquid crystal flat panels and certain medical devices.
In the machine tools segment, we launched a new compact press
brake, the NSB50-1200. This machine has bending capabilities
equivalent to those of medium and large machines, and meetsthe rigorous safety standards required by the E.U.

Leading in Technology – Computer Color
Matching Systems
In July 1998, we established a new division to develop our CCM
systems business. The potential for this business is immense. CCM
systems have a seemingly infinite number of applications in many
fields, including textiles, printing, cosmetics, paints, electronics andautomobiles. This business is still in its infancy and there are manyas yet untapped fields. We will pursue rapid growth through intensive product development and finely-tuned marketing strategies.
Recent new products include the CM-3800d, developed jointlywith MINOLTA Inc., which allows high-precision analysis of fluorescent dyes and pigments, and its fuzzy logic management system, the CHOSHOKU SENKA FCM. Another new product, thecompact Hyper-CHOSHOKU SENKA PX paint CCM and automatic dispensing system, was produced through a technical tieup with DROMONT S.p.A., the noted Italian manufacturer of
mixing machines. In February 1999, the CCM Division opened aservice center in Tokyo to offer improved after-sales support tocustomers. The division is also increasing its number of contracted
sales companies.

Rationalizing Our Production Infrastructure,
Investing in R&D
The Tokyo Plant in Adachi Ward has been in operation for over
75 years, producing mainly non-textile products. Adjacent to theplant is the Tokyo Research Center, our core facility for the development of new materials and products. We have decided to relocate the facilities at the plant, and this relocation offers an excel-

Our “DNA Oligomer” is used in
DNA analysis

The Keyword is Ecology (1)Artist’s impression of our new R&D CenterWe are constantly developing processes and products that make a contribution to
the conservation of the natural environment. One such product is the ECOSYS 28˚Csummer shirts line. Jointly developed with TEIJIN LIMITED and made mainly from SSP
material, these shirts have an excellent water-absorption capability. Wearing theseshirts in humid climates, one feels fresh and comfortable, even when the air-conditioning is set at a moderate 28˚C.
For the fall and winter seasons, we developed ECOSYS 20˚C in cooperation withTEIJIN LIMITED and The Japan Wool Textile Co., Ltd. The heat-retention capability ofthis material has been increased so the apparelcan be comfortably worn in a temperature of
20˚C, the same temperature as a mildly-heated
office.
In these ways, we help to cut energy usage
and harmful emissions all year round.

7

lent opportunity to rationalize our production facilities and improve our R&D capabilities.
Our decision to relocate was prompted by Adachi Ward’s designation of the Tokyo Plant site and its surroundings as the location for a new urban planning project, which will include housing and open space for use in the case of natural disasters. Thispart of Adachi Ward is already quite urbanized, so expanding theTokyo Plant would have been difficult in any case. We have sold
115,000m2 of the 153,000m2 site for approximately ¥27.5 billion,
and we expect to spend the same amount on relocating.
Some of the production work currently undertaken at the Tokyo Plant, excluding work done by subsidiaries and affiliates, willbe transferred to other plants as appropriate. Relocation of the main
production operations to other plants will be completed by September 2002. This new system will be more efficient than the present
arrangements. We will cut costs, carry out related manufacturing
operations at the same site, and take this opportunity to introduce
the latest in manufacturing equipment. We also anticipate that therelocation will make it easier for us to move from the development stage to mass production of products as a result.
By September 2002, the Tatebayashi Plant will be our main basefor the production of brake friction materials, and by March 2000

the Chiba Plant will be our main base for the production of polyurethane foams.
We are now building a state-of-the-art R&D center at Chiba
Toke Midori-no-Mori Industrial Park (Green Tech. Chiba).
Completion is scheduled for March 2000. It will be our main research facility. Conducting research across traditional product anddivisional boundaries will enhance our creative capabilities.

Working as One
In January 1999, the Textile Engineering Division moved from
Tokyo to Osaka, where textile sales operations are based. This enhanced the coordination of different functions from development
through to production and sales. We have also accelerated decision-making and the formulation of business strategies. In addition, in the textile field we have introduced a more adaptable system for the placement of production personnel. If necessary, staff
can now be transferred to any one of a number of plants or offices.
As a result, we can now respond much more flexibly to market
demand. Our particular goal is to be able to manufacture a wider
diversity of products, including those with relatively short production runs. We can also get new products to market muchquicker. These new arrangements ensure that we can capitalize

International Technical Agreements

International Network

As licensee:•Cluett, Peabody & Co., Inc. of the U.S.A. fortextiles finishing technology•Meritor Heavy Vehicle Systems, LLC of the U.K.
for commercial vehicle disc brake technology•Continental Teves AG & Co. oHG of Germany
for MK60 ABS, TCS and ESP technologies
As licensor:•Rane Brake Linings Limited of India for friction materials technology•Heng Tong Machinery Co., Ltd. of Taiwan for
friction materials and passenger car discbrake technologies

INTERNATIONAL NETWORK8

As cross-licensing partners:•BBA GROUP PLC of the U.K. for friction materials technology•Lucas Varity PLC (TRW) of the U.K. for drumbrake technology•Meritor Heavy Vehicle Systems, LLC of the U.K.
for drum brake technology•Continental Teves AG & Co. oHG of Germany
for passenger car disc brake technology•Continental Teves AG & Co. oHG of Germany
for NT20/MK20 ABS and TCS technologies

on the increasing number of products we are developing in-house.

Taking a Global View of Growth
The global market is our “home ground.” As part of our businessstrategy to provide superior products worldwide, we manufacture overseas, not only to serve the local market but also to sell tothird countries.
For example, together with Nisshinbo Hong Kong Limited, wesell processed textile products manufactured in our Chinese andIndonesian plants throughout Asia, Europe and the U.S.
In fiscal 2000, production volume of SSP shirts at Shanghai
Kaikai Non-Ironing Garment Co., Ltd. will be increased from
340,000 to 500,000 units. As well as being sold locally, these shirts
will be exported to Japan, the U.S. and Europe.
In December 1998, P.T. Gistex Nisshinbo Indonesia began operations at its new dye processing facility. This new plant allows
the entire processing and finishing of textiles to be performed inIndonesia, strengthening the global production infrastructure of
the Nisshinbo group.
Great changes are taking place in the automobile and automobile components industries, such as cross-border consolidation,and our automobile brakes operation has been quick to respond.

We are cultivating the U.S. and Asian markets in particular. In the
U.S., our high-quality brakes are prized for their stability and lownoise characteristics. We have received sales inquiries from the “BigThree” automobile manufacturers and others in the U.S., and weare confident that we can expand our client base. In February 1998,
Nisshinbo Automotive Corporation (NAC) won an order from
GM for T-800 friction materials for use in trucks. NAC’s T-800
mass-production plant has begun full operations. In March 1999,
Nisshinbo Automotive Manufacturing, Inc. stepped up production of disk pads and other parts in response to a large new orderfrom Volkswagen.
In July 1998, Nisshinbo Somboon Automotive Co., Ltd. (NSA)in Thailand began full-scale operations. Because of the uncertain
business environment in that country, we have reinforced NSA’s
financial structure by increasing our equity stake to 97%. NSA
will eventually become a manufacturing base of friction materials for the entire Southeast Asian region.
In April 1999, we established a technology tie-up with Continental Teves AG & Co. oHG of Germany, under which we will
manufacture MK60 ABS using technology under license from theGerman company. We are discussing with Continental Teves thepotential for further cooperation between our two companies.

A diverse product lineup is one of our strengths

Nisshinbo Somboon Automotive Co., Ltd.

The Keyword is Ecology (2)In May 1998, the Miai Plant gained ISO14001 certification, the widely respected international standard for environmental management systems. In January 1999, theTokushima Plant, a highly complex facility that is the production arm for six different
business fields, received ISO14001 for all its production operations. It is rare for aplant that manufactures so many diverse products to acquire simultaneous certification for all categories. We continue to expand our environmental management
activities with a view to obtaining ISO14001 for all our plants and offices.

Our shirt materials are popular worldwide

9